Israel Securities Authority: Guidelines for Discussions with Investors Prior to Publication of a Prospectus

A wave of IPOs continues to flood the market, prompting the Israel Securities Authority to publish a new staff position paper discussing three key topics.

1. The information and details a company may disclose to institutional investors in a non-uniform (book-building) offering and to classified investors in a uniform offering prior to publishing a public draft prospectus or a final prospectus.
2. The minimum time frames between the publication date of a first public draft prospectus (and later drafts) and the date of receipt of advance commitments or letters of intent to purchase securities during the IPO, as the case may be.
3. Disclosure provisions on the information to include in a prospectus, supplementary notice, shelf offering memorandum, or report of IPO results (all as the case may be) when using a non-uniform offering method for categories of investors who submitted orders to purchase securities and participated in the IPO.

The ISA’s staff position paper divides the IPO process vis-à-vis investors into three main time frames.

1. Analyzing the feasibility of the IPO – testing the water

Information disclosures

In principle, the Israeli Securities Law enables the offering of securities to the public on the basis of a prospectus or on the basis of a draft prospectus.

However, according to the ISA’s position paper, for both uniform offerings and non-uniform offerings, companies and underwriters may disclose information to institutional/classified investors and hold discussions with them, including about the quantity and price of the securities being offered in the IPO, even before publication of a draft prospectus.

In any event, the underwriters of the prospectus are responsible for ensuring that any material information disclosed to institutional or classified investors is included in the public draft prospectus (if published) and in the final prospectus.

2. Roadshow

IPO participation documents

In order to ensure the IPO negotiations and pricing are done on the basis of a public document prepared in compliance with the requirements of the Securities Law, i.e., a prospectus or public draft prospectus, as opposed to on the basis of information disclosed during the stage analyzing the IPO’s feasibility, advance commitments (during a uniform offering) or letters of intent to purchase (during a non-uniform offering) are not to be issued until 10 days have elapsed since the publication date of a public draft prospectus.

If another draft prospectus is published containing material changes relative to the previous draft prospectus, advance commitments or letters of intent to purchase during the IPO are not to be issued until two additional business days have elapsed since the publication date of the additional draft prospectus. Finally, if commitments or letters have been issued on the basis of the first public draft prospectus, companies must obtain their reconfirmation, but not before two additional business days have elapsed since the publication of the additional draft prospectus.

3. IPO

Disclosure regarding investors in a non-uniform offering

Similar to the disclosure required until now for investors who submitted advance commitments during a uniform offering, the ISA position paper states that for a non-uniform offering, companies must publish information about the investors that will be participating in the IPO. This information gives potential investors an indication of the quality and nature of the offering and of the demand.

Thus, companies must disclose the following in a prospectus, supplementary notice, or shelf offering memorandum: the number of institutional investors of the same category (mutual funds, provident funds, insurance companies, etc.), the inclusive ratio of their orders out of the total quantity being offered and out of the total orders, and the number of investors of the same category that each submitted orders for more than 10% of the securities being offered.

When reporting the IPO results, companies must disclose the number of institutional investors of the same category to whom the company allotted securities during the IPO, as well as the quantity of securities allotted to each and the ratio out of the total quantity being issued. Companies must also disclose the number of institutional investors of the same category to whom securities were allotted at a ratio exceeding 10% of the total quantity being issued.

For interested parties in an IPO, companies must fully disclose in the prospectus or supplementary notice the names of the interested parties and the quantity of securities that each committed to purchase in the IPO. In addition, in their reports of the IPO results, companies must disclose the interested parties’ names and the quantity of securities each of them purchased.